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The euro grabbed the headlines as it climbed back towards a recent 33-month high against the dollar above $1.20 following a meeting of the European Central Bank’s governing council.

While Mario Draghi, ECB president, made several references to the single currency’s strength he also indicated that plans to begin scaling back its quantitative easing programme would be unveiled next month.

The single currency touched $1.2059 against the dollar, just a whisker away from last week’s intraday peak of $1.2069. It subsequently edged back to $1.2018, but was still up 0.9 per cent on the day.

The euro was also up 0.4 per cent against sterling at £0.9171.

Eurozone government bonds also rallied, pushing the yield on the 10-year German Bund down 4 basis points to 0.30 per cent. Italian and Spanish 10-year yields fell 11bp and 8bp, respectively.

“Although president Draghi stated that the currency’s rise was a ‘source of volatility’ that the ECB would monitor, he did not, as some had thought he might, attempt to talk it down actively,” said Oliver Jones at Capital Economics.

“Meanwhile, although Mr Draghi chose not to set out the ECB’s plans to ‘taper’ its asset purchases, neither did he suggest that the euro’s strength will delay the scaling back of quantitative easing.”

Anna Stupnytska, global economist at Fidelity International, said the post-meeting press conference had been a tricky one for Mr Draghi.

“He tried to strike the right balance between being confident in the strength and breadth of economic recovery, being not too worried about the recent euro strength whilst simultaneously convincing investors that it is appropriate to keep policy accommodative for longer,” Ms Stupnytska said.

“This created an interesting dynamic in the market with both the euro and European government bonds rallying in response, presumably in expectation that a stronger currency will ultimately prolong QE tapering.”

Divyang Shah, global strategist at IFR Markets, said the euro’s pullback from the day’s high reflected the expiry of option contracts, totalling some €2.5bn around the $1.2000-$1.2010 mark for Thursday and Friday.

“What is a better signal of euro/dollar upside is the fact that we are still in a generally dollar bearish environment,” he said.

Forex and fixed income

Indeed, the dollar index, a measure of the currency against a weighted basket of peers, fell 0.8 per cent to 91.55 after touching 91.41, its lowest level since the start of 2015, continuing the steadily downward trend seen since the start of the year.

The dollar fell 0.7 per cent against the yen to ¥108.51 and 0.5 per cent versus the Swiss franc at SFr0.9511, in part reflecting persistent concerns over geopolitical tensions in the Korean peninsular. Gold jumped $15 to a one-year high of $1.348 an ounce.

Those moves came as US Treasuries returned to favour following a sell-off on Wednesday.

The yield on the 10-year note was down 6bp at 2.05 per cent, the lowest since November’s US presidential election, while that on the two-year was 4bp lower at 1.27 per cent.

As well as geopolitical worries, there were also concerns in the market about the potential economic effects of Hurricane Irma, due to reach Florida over the weekend.

Data released on Thursday showed that initial jobless claims rose to 298,000, far more than expected, reflecting the impact of Tropical Storm Harvey.

“Disruptions to employment on account of the hurricane are expected in the short run, owing to the halting or trimming of production in some industries,” said economists at Barclays.

“Thus, we expect claims to remain at elevated levels for the coming week as well.”

Meanwhile, the renminbi touched a 16-month high against the dollar, firming as much as 0.4 per cent to Rmb6.4996 per dollar.

Equities

Global equity markets put in mixed performances. Wall Street initially found fresh support from Wednesday’s news that President Trump had agreed to a three-month extension of both government funding and an increase in the debt ceiling, reducing the chances of a near-term government shutdown.

But the early gains evaporated, leaving the S&P 500 down fractionally at 2,465 by the close of New York trade. Walt Disney shares stood out with a drop of 4.6 per cent.

In Europe, the Stoxx 600 also came off an early high but still ended 0.3 per cent firmer.

South Korea’s Kospi jumped 1.1 per cent, its best day since June, after Mr Trump said that military action was not his “first choice” to deal with North Korea following Pyongyang’s nuclear test on Sunday.

Japan’s Topix index rose 0.4 per cent.

However, traders’ optimism did not buoy the whole region; Hong Kong’s Hang Seng index ended down 0.3 per cent.

Commodities

Oil prices turned choppy after data from the US Energy Information Administration showed that crude stockpiles recorded their first weekly increase for more than two months after Harvey shut down energy industry operations.

Brent crude, the international benchmark, settled at $54.49 a barrel, up 0.5 per cent, after touching a low of $53.89, and a three-month high of $54.67. West Texas Intermediate, the main US contract, was down 0.2 per cent in late trade at $49.08.

Additional reporting by Kate Allen in London and Alice Woodhouse in Hong Kong